Helios Technologies, Inc. (HLIO) Earnings Call Transcript & Summary

Good day, and welcome to the 2021 Helios Technologies Investor Day. My name is Tania Almond, Vice President of Investor Relations and Corporate Communications. We are thrilled to be hosting this event today at our brand-new headquarter facility in Sarasota, Florida. We are physically sitting in our brand-new customer experience center. Of course, we will make forward-looking statements today that include risks and uncertainties that could cause our results to differ materially from where we are today. These risks and uncertainties are covered in our latest 10-K filing with the Securities and Exchange Commission, which can be accessed both through our website as well as the sec.gov site. We will reference some non-GAAP financial metrics, and we have reconciled those metrics to GAAP metrics in the appendix of our presentation. This morning, we also announced a press release where we detailed some of our updated long-term financial targets and talking about how we're accelerating our growth and profitability goals. Additionally, we are reconfirming the guidance that we gave on our 1Q earnings call for our full year 2021 estimates. As you know, we're all doing things a little bit differently these days. This event is a perfect example. This is a hybrid event where many of you were not able to travel and be with us here in person. But we did have some folks that were able to come out, and we're very thrilled about that. As a thank you gift to all of you for participating today, we wanted to make a donation on -- kind of in your behalf to a local organization that's very near and dear to our hearts here at Helios. They are the Sarasota Bay Watch. They're very involved in local good works around cleaning up the oceans. They do shoreline cleanups. They do clam drops to put natural filters back into the ecology, and we're just very proud to partner with an organization like this. As you saw from the opening video, it's very important to our corporate culture to support the communities that we live and work in. So let's take a quick look at the agenda. We'll talk about logistics and some timing. So very shortly, I will be handing it over to our CEO, Josef Matosevic will be talking about our augmented strategy to drive growth and performance. After Josef, our newly appointed President of CVT, Jason Morgan, will come up and talk about how we are expanding our leadership in hydraulic applications. Then the dynamic duo of Billy Aldridge, our Senior Vice President and Managing Director of Enovation Controls; and JP Parent, our Senior Vice President of Sales for Balboa Water Group, will come up and talk about how we are leading the way in engineered electronic controls and the long runway of opportunity that we see in that category. Following that team will be John Shea, our new Chief Commercial Officer. And John, I think you're on day 15 of your new role. John will be coming up to talk about how we plan to deliver improved customer experiences. Through our integrating go-to-market strategy. Following John will be Doug Conyers, our Vice President of Engineering Excellence for Helios, and he joined us from the BJN acquisition. He will talk about how we are going to accelerate our diversified growth through innovation and this new model that we'll be using across our companies. Then Rick Martich will come up, our Senior Vice President of Manufacturing Operations. And Rick will talk about how we're driving profitable growth through operational excellence. Following Rick will be our Chief Financial Officer, Tricia Fulton, who many of you already know very well. Tricia will come up and talk about the financial implications of this new strategy and how we intend to create value. Josef will then come up for some small brief closing remarks, and we'll then take a short break, both for the virtual audience as well as the group here in the room, probably about 10 minutes, and then we'll bring the whole team back up front for some panel Q&A. We are scheduled to end the session at 12:30 Eastern Time. So we'll just run as long as we either exhaust questions or get to the end of our time together. So with that, it's now my great pleasure to introduce our President and Chief Executive Officer, Josef Matosevic.

Good morning, everyone. Thank you. I really can't tell you how excited we all are to finally tell our entire story here. The stock opened up this morning. It's always a good thing when investors walk in and the stock is up, so please feel free to stay a couple more days. It's a good sign. Let me also welcome you to our new customer experience center here. This is a special moment for us as the entire building was designed around creating the best customer experience and also showcase our current innovation and future innovations as well. For folks in the room, there's a little simulation gizmo here on the right-hand side. And when we bring in customers, we can really walk them through every SKU we sell, we design, we develop. And if there's any changes required on the customer front, we can adjust really quickly and agile to support the change. But that's a technology that we leveraged from innovation controls. In that spirit, you guys hear from Tricia and I once a quarter, and we believe it's extremely important that you meet the team and hear from the entire team here how aligned are we, how well do we understand the strategy, and most importantly, how are we going to execute. So what you will hear today is, number one, our augmented strategy and how we're going to apply our force multiplier and achieve our goals. number two, our outsized growth driven by diversification and innovation organically and inorganically. and third, we have been a strong financial pro forma for a long time but believe there is still much room to grow organically through acquisition and also improve our margins. This is the newly designed Helios business system, and it starts in the middle. This is the heart of everything we do, that our trusted global brands deliver technology solutions that ensure safety, reliability, connectivity and controls. On the outer rings, you can see our shared values. Continuing our 4 key mission pillars that we will stay laser-focused and spend a lot of time incorporating, designing and developing, and probably equally important, when we started the journey of developing this business system, let alone managing through COVID, there was a lot of learnings that we had. But very importantly, we ran 2 independent studies. One study was a customer perception study, and the other one was an investor perception study. And I want to take a moment and thank each our customers and our investors who participated in that study. We learned a great deal. It was transparent. It was an anonymous and incorporated those 2 voices and also pulled in the entire organization to really work together and mapping out what the next 3 years look like post-COVID, how are we going to win and how are we going to design and build that business system to create a strong differentiation and separate ourselves from the competition. So number one was protect our business, protect the cash flywheel so we can reinvest in our business, we can reinvest in innovation and we can grow through acquisition and organically. We have to think and act more globally. By and large, we were founded here in North America, and most of our sales were in the North American region. We will start branching out with our current products and start focusing more on in the region, for the region so we can avoid freight costs and we can avoid quality issues because every time you put a product overseas, something will happen. We will embrace diversity and we will develop our talent. The development of our talent is probably what I'm mostly excited about. We have made some changes, and the team will talk about it and you will meet those guys here in [indiscernible] very soon. Here, are our supporting strategies for our mission is drive the cash flow engine, cultivate customer centricity and leverage existing products to protect our business, just to name a few. Champion a global operating mindset. As we worked on our talent management profile, we have also added folks internationally who possess the core values, the diverse backgrounds and experience and can really move the needle on the customer front and execute on the manufacturing front. We will continue to diversify our end markets, lead with technology and monetize our synergies. And you will hear this monetization and leverage throughout the entire presentations here over the next couple of 3 hours. To be successful in strategy deployment, there's an order to the process. We have defined our purpose and our mission, which informed our strategy and augmented our value stream. And to make this work, we need to have the right operating structure. And we have made a few changes to the team and to the organization so we can achieve that. And most importantly, working on the tactics and plans. You can have the greatest vision and mission and strategy, but you got to be able to execute. So having folks who understand and embrace and having contribute towards this journey and knowing how to execute, we have worked extremely hard over the last 8, 9, 10 months to achieve that. Just a summary of 2020 here. In the neat part is, we are truly just getting started. All of you guys know, I started at June 1. We have been a very disciplined dividend payer for a long, long time and very recently announced our 99th dividend payment. Late last year, we upsized our credit facility to $900 million. In return, that allowed us acquire the Balboa Group, to acquire BJN Technology. And very recently, we announced 2 acquisitions that we're going -- that we are planning and closing over the next couple 3 months with Joyonway and with NEM. At the same time, from a talent management standpoint, we upgraded our talent. We have appointed Tania Almond, who you just met, in the opening remarks, Jason Morgan took over as the initial Managing Director of CVT and very recently promoted to President, and you will from Jason in a few minutes. We have appointed John Shea, who will be our Chief Commercial Officer; and Billy Aldridge, who will be our -- who is our SVP and Managing Director of Enovation Control. And all this is designed based on our strategic imperatives. Then the final step was our manufacturing and operations strategy. We needed to have an operating strategy that we can leverage, that we can structure the product growth around sales and marketing and make manufacturing a competitive weapon for us. So we can leverage the supply chain globally, that we can integrate and bring our partners closer to where we do business and have a in region, for the region strategy. That drove the appointment of Rick Martich, who you will meet in a few minutes. As part of our customer perception study, one of the key feedback we received was, in many cases, we are just really tough to do business with, okay? We have a few key brands, and in many cases, we called on the customers individually by brand. And then started to compete in many cases, against each other. So we learned that with Doug and we fixed the process, and we decided we're going to ahead towards a future state where we can have the proper leverage and the proper team in place to execute. Let me be crystal clear here. We are going to lead with our brands. We're not changing that. But we're going to leverage 3 key areas in that's sales, innovation and manufacturing. Those 3 areas we will leverage as a company to avoid the duplication in the process and have a single leader appointed who will cut across all the businesses and collaborative work with the team on structuring plans and executing those plans and winning new customers. So that's where we're heading as a company. You heard me talk about new applications in diversified markets. Make no mistake, we still have plenty of room to grow in our existing markets. And you will hear a lot more detail how we're going to achieve this year over the next couple of hours. But just focusing on diversified markets, the notion of connectivity, of safety, reliability is extremely important. And when you look at Helios and our brands, we are truly a pure-play player in the company -- in the industry. We can laser focus on hydraulics and electronics and invest and have a go-to-market strategy that represents a unified front. And you look at those rugged applications on the bottom here, if it's a specialty vehicles or commercial [ agency ] or foodservice, all those applications, we have products for. So in some cases, we were already very successful on winning a couple, 3 orders with our current products. In other applications, we are leveraging our acquisition with BJN, and Doug will talk about some breakthrough technology here, where we will continue to position us for future organic growth with new applications and diversified markets. Those orders that are more fixed term orders, and they last 3 to 5 years. And this is really a very exciting journey for us. And once again, you will hear a lot more detail here. Our acquisition strategy, that was the next step in our process. And as we sit down and develop this, there were key KPIs that are super important for us. We don't want to buy a company just to add top line. We want to buy a company that can add value to all of our brands, either through talent or closing our product gaps, while helping us with manufacturing capabilities or diversified end markets or in region for the region manufacturing. We will not buy companies that are turnaround candidates. All the companies we are targeting and our funnel is very healthy, both on the flywheel acquisitions and on transformational. We will buy companies that are very disciplined, niche-driven technology player that are accretive to the EPS and to our shareholders day 1. And we will stay laser-focused this journey. But in order to do all this, our business system will kick-start that engine. Everything around our business system has to be aligned in order for us to be able to do M&A. So it's a full circle, closed-loop environment here. So in summary, we announced this morning that, after having established detailed plans, after pulling in the entire company to really have a voice and digging in very deep in our current state and establishing future state, getting very close to our customers, also outlining our future customers and the current discussions that are ongoing, and with a few of them we have NDAs in place already, it was the right thing to do to readjust our original goals that we outlined a couple of years ago by saying now we would be at $1 billion in sales by year-end 2023 with an organic sales growth approximately 2x market rates with an adjusted EBITDA margin of approximately 25% by 2023 and an organic non-GAAP cash EPS CAGR greater than 22%. Probably my most favorite slide here. You will meet most of the folks here today besides Matteo, who is our President of our Faster business. He couldn't come due to travel restrictions. He's in Italy, Europe. But look, I really have to step back and look at each and every one of them and just extend a very genuine thank you. It has been a very tough year managing through COVID. We have missed a beat. We have made -- we have announced 4 acquisitions, closed 2. And we'll close the other 2 here very soon. And we have a very diversified team here in terms of background, but they all have commonality that really fits with the leadership style and the company. I want to be CEO in they're very passionate, driven, they want to win, strong integrity. And I just couldn't be more proud of having folks like that on my team and really looking forward over the next 3 to 5 years to separate ourselves from the competition and become extremely tough to follow. So with that, thank you for your time, and please enjoy a great detail of information now as we will be as transparent as you may wish for. So thank you. I think now we're going to play a video. [Presentation]

Good morning. I would like to extend my personal welcome to each of you. It's exciting to have visitors once again. And for those participating virtually, we look forward to hosting you very soon. COVID travel restrictions have limited our opportunities to demonstrate the great progress we're making at Helios here and around the world. I trust that you'll find through today's session that fluid power is a moving force in our lives. Sun Hydraulics' over 50-year history, coupled with Faster's 70th anniversary this year, represent the base business that provides that solid foundation for Helios to achieve our strategic objectives. Specifically, the Hydraulics segment provides that rotational force that powers Helios' cash flywheel. Our astute management team is laser-focused on liquidity performance metrics designed to fuel our growth. As a niche player, our product portfolios have captured strong market share and are enabling us to expand our reach with diversified applications and into diversified end markets. There exists within our organization a level of divine discontent that drives our strong execution in an effort to continuously improve and delighting our customers. Building on our solid foundation, leveraging our performance and diversifying our opportunities are paving our pathway to superior growth. Now let's take a deeper look into the Hydraulics segment and our brands. Sun Hydraulics is our legacy screw-in cartridge valve business. The Sun brand has powerful recognition in the market as the premier product due to our lead times, quality and delivery performance that, in most cases, is industry-leading. Our electrohydraulic product, branded FLeX, is winning attention. I'll discuss more about that later. Our [ Seungwon ] product manufactured in Korea is a key component in delivering our good, better, best strategy. Custom fluid power delivers value-added product and services direct to consumers or customers in Australia, New Zealand, Thailand, Vietnam, among others. Faster similarly delivers as the industry standard for quick release couplings. As we released yesterday, we look forward to welcoming NEM into our business soon. As a segment, we empower the exceptional performance you trust from Helios. We delivered over 70% of the revenues of the organization over the last 12 months. Helios continues to invest in the Hydraulics segment, specifically, we've worked diligently to close the portfolio gap of our electrohydraulic products. With the addition of NEM, our EH line will now cover the majority of EH functions. Faster continues to make progress with their MultiFaster product, and we'll discuss a recent innovation here in a few minutes. We avail our legacy markets across mobile, industrial and ag through robust channels to market that are decades strong. Sun's distribution channels are, in some cases, as old as the company, paired with Faster's OEM relationship, represent a valuable off-balance sheet asset. This asset provides a conduit for our growth. One example is our new product innovation program. This allows our channel partners to engage directly with our engineers to enhance, modify and develop products to meet a customer-specific need. Our ability to nimbly react to market-driven innovation is part of our strategic positioning. The hydraulics addressable market is far greater than just construction and ag. Hydraulics touch our lives multiple times a day, from your coffee to the gas in your car, to the elliptical machine that you worked out on at night. Hydraulics is an ever-expanding force. We continue to see diverse application of our products that are enabling market expansion, recreation, pharmaceutical, health and wellness and potential opportunities in thermodynamic as heat transfer through the use of fluid power gains with larger and more expensive data centers. Our healthy geographical diversification allows us to weather market cyclicality in isolated geographies. Expanding our international distribution and OEM opportunities by adding dedicated global and regional sales forces in underserved white and gray spaces and by signing on new distributors, we will further expand our opportunities for global growth. Rick Martich will discuss later today how our manufacturing footprint is expanding to support this geographical reach. As I mentioned previously, our network of relationships positions us for market-driven innovations. Here are just a few that I'd like to highlight. Let's start with a diversified application example. We were approached through our channel to develop a solution in a high-viscosity application. We were able to quickly modify an existing product to eliminate warranty losses due to product failures below the customers' warranty period. By dramatically extending cycle times, we conquered complexity for our customer and opened the line of diversified applications for our products into these high-viscosity applications. Next, I'd like to highlight a project with a customer in Vietnam. This opportunity leveraged the capabilities of our team at Custom Fluidpower to assemble a package of valves, manifolds, electronic controllers and innovation displays for the customer. Each truck represented over $60,000 in Helios content, and this demonstrates the synergies of our Helios portfolio. Lastly, I would like to highlight how our EH product, paired with our integrated package capabilities, has positioned us to support a large manufacturer of excavators with their next-generation intelligent grade systems. We are clearly seeing the payoff of our investments in market-driven, customer-centered product innovations. The industry is taking note of our innovations and another market-based development. To reduce the circuit complexity, increase reliability and improve our performance, our engineering teams at Faster and Sun collaborated to design a solution that leveraged the recently developed MultiFaster product with Sun's electrohydraulic FLeX valves. This favored solution won the acclaim of John Deere in their recently announced Supplier Innovation Awards, which we disclosed to you at the end of Q1. In May, OEM Off-Highway magazine, nominated our recently released FREP electrohydraulic valve for their 2021 Top New Product Awards. These innovations are positioning the Hydraulics segment of Helios for new market penetration by leveraging the diverse application of existing products and developing new products for adjacent markets, we are poised to both expand and diversify our end markets, propelling Helios to greater growth. An example of our expanding wallet share opportunities through synergies, we are finding ways to leverage each company's products. For example, in 2021, we will add the Faster couplings into the Sun Hydraulics manifold design software, allowing application engineers at Sun's -- across Sun's distribution network to tap into the Faster product. Growth opportunities abound for Helios and specifically in the Hydraulics segment. We have exceptional opportunities to expand what we sell through new product development, brand expansion, diversified applications and integrated offerings across the Helios family of brands. Additionally, we're growing our wallet share, filling in geographical spaces and leveraging each company's channels to market. This will increase our opportunities for where we sell and how we sell our products. These 3 dimensions demonstrate the pathway to ongoing development as a diversified industrial niche company. In summary, the Hydraulics segment of Helios provides the platform base for which we are positioned to grow from. Our products and our brands have us poised to grow and diversify. Our execution, delivered by our exceptional colleagues around the globe, paves the way for continued expansion. Thank you for your time this morning. And I'd like to turn it over to the Electronics segment, beginning with a brief video. [Presentation]

Wow, I want a cool video. Kind of want to go boating after watching that. What do you think JP?

It's [indiscernible].

[ Do it ] on the boat. So no, we're so grateful to have everyone here today, either in person or online. Our Electronics segment has a great story to share. We have a rich legacy and an exciting future. My name is Billy Aldridge, I'm the Managing Director of Enovation Controls. I've been with Enovation a little over 13 years, been in and around electronics for the last 21 years.

And I'm JP Parent, the Executive Vice President of the Balboa Water Group. I have been with Balboa for about 12 years, came through the acquisition of the spa business of Pentair in 2008. And prior to that, I was already in the spa industry for 8 years, a total of 38 years in the health and wellness altogether.

Yes. We're going to get right into it, right? Key takeaways. Number one, we have a robust product foundation. Josef mentioned about protecting our business, our robust product foundation lets us protect that business and also allows us to grow our base business. We have proven experience and deep application knowledge of the markets that we go after today. So speaking about our growing -- our large end markets, they're growing. Our customers look to us to provide solutions to them to conquer the complexity of their applications.

In the Electronics division, we have a lot of pride in the way we consistently met and exceeded our customers' expectations over the years. And there's no reason why we're not going to continue to concur those new adjacent markets with the same drive and the same determination. Now everybody nowadays wants to be able to remotely control their devices. Of course, no exception in our division. We have to design and make products that corresponds to the consumer lifestyle, the connected lifestyle that everybody is expecting. The Electronics division represents 29% of the total Helios revenue. We expect this percentage to grow in the year to come because of the Balboa acquisition, obviously. Now we are extremely OEM-focused, as you can see, with 81% of our sales with OEMs. This is really ingrained in our DNA. We know how to customize products for very specific OEM applications. We'll continue to do so, but it doesn't mean that we're not going to look at other channels, obviously, like the distribution channel that only represents 14% of our sales today. We are developing specific products for the applications such as retrofit kits, for example. And we have plenty of products to choose from between Enovation and Balboa, and soon, the Joyonway acquisition is going to add to that portfolio of product. Now there is a common thread in the product that we design. They're all designed to withstand the test of time. We know what a harsh environment is at Enovations and Balboa because we design products that can resist to water penetration, dust, chemicals, sun, you name it. All our products are designed to ensure safety, reliability and connectivity.

We have a long history in electronics. Enovation has been producing solutions in the industrial recreation market for the last 80 years. Balboa been producing solutions in the health and wellness market for the last 40 years. During our time line, we both -- both companies have released game-changing technologies that have advanced our customers. What's really exciting is where we are today and what we're investing in our Electronics segment to extend our future well beyond 80 years in the future. So really excited about that.

Yes, for sure. And obviously, this $176 million, which was the sales of Electronics division as of March 2021 for the last 12 months, this number is going continue to grow because of the Balboa acquisition and because of the growth of Enovation. There's a lot of potential growth in the industrial, mobile and creational sector that Enovation is working on right now. And this growth is probably even larger than the health and wellness. And that's why we expect the growth to be more balanced over the last -- in the next couple of years, even though the recent growth came from the Balboa acquisition. This being said, in the health and wellness segment, there are some niche markets that we're working on. Just to name a couple, the walk-in baths, for example, and the swim spa sector that have been growing double digits for the last 5 years offer really nice opportunity in this industry to continue to grow. Now if you look at the total electronics market, obviously, the opportunity can be measured in trillions, right? But if you try to be a little bit more pragmatic,and look at the type of product that we design and make and the industry that we could service, we evaluate this market to be approximately $4 billion large. And if you zoom in even further on the industry that we're currently servicing with our products, then you're down to about $2.4 billion. I say down to $2.4 billion, but when you compare that with the $200 million, that gives you an idea of the magnitude of the opportunity that we have in front of us.

So yes, our current markets. Like I mentioned, we have a large market -- current market today, just like the Hydraulics segment. Today, we produce maybe a single display to replace the gauge cluster on a dash or it could be a complicated solution that we provide to our customers or several displays, several I/O devices or several controllers, right? It's always -- we're going to protect that business for sure. But if you start thinking about stepping back and look at our growth markets and taking our products across different segments, right, we are actively gaining knowledge in these segments that you see today, right? Gaining that experience with our commercial teams, with our engineering teams and to go out and attack these markets to grow.

Definitely. And we already benefit off a pretty large footprint worldwide. Whether it's through sales and customer service support, we have representatives in many different countries to serve our customers locally. Whether it's through distribution, we have warehouses in several continents already or manufacturing. And obviously, with the upcoming acquisition of Joyonway, we're going to expand that manufacturing footprint even more, furthermore in low-cost area, which is going to give us a nice competitive edge, obviously. This being said, when you look at this slide, it's clear that our sales are not very well balanced. We are very focused on North America right now and on OEM business. So we have some work to do. But we didn't wait for this slide to get to work, obviously. We are actively engaged right now with some key distributors in Europe and Middle East as well as Asia Pacific. So we expect those sales to become more balanced over the next couple of years.

Yes. The most exciting slide, right, is product innovation. It's key to who we are. Our customers, like I said, look to us to provide solutions. For those of you that are here today, you actually get to see a couple of innovation. You have the motorcycle display that's over here. There's a hot tub outside, you can see that later in the day. So JP mentioned that our products got to live in these rugged environments, right? We're really good at that. But also the consumer expectation from our display standpoint, they want it to work just like they see in their cars, like they see it on their phone, like they see on their tablets. I think when you guys touch the display today, you'll realize we're really good at that, right? But we're not just a display manufacturer. There's so many more things that we produce today from the Electronics segment. There's things that are under the deck or under the hood that we produce, right? That puts the solutions together. One of the recent innovations from Enovation Controls is the machine controller. When you pair that with a display, you get a powerful tool to go take to our customers and go win that business.

And some of you might wonder what this snowflake try to illustrate over there. Well, this is probably the most exciting product introduction for Balboa in many, many years. We are going to be able to provide consumers a wonderful experience when they want to exercise in their swim spa. Now we're going to be able to cool the water as efficiently as we were heating it before. And this, thanks to the heat part integrated control that we're developing and launching in the fall. This is really exciting because we're talking about totally incremental sales in a segment that is already growing leaps and bound. So I mean, this is really, really exciting. This technology that we're going to be the first ones to bring to this market is going to allow people in Phoenix in the summertime to finally exercise in their swim spa in normal temperatures water.

So this is our most important slide today to take away from the Electronics segment. We know that there's not a one size fit all when it comes to electronics. But if you step back and you look at our Enovation product, the Balboa product and the recent Joyonway products, how you step back and can you get to a one size fit most, right? And so when you start looking at all the different offerings that we have together, to put those offerings together, to go attack these new growth markets, it's going to be really powerful. And we're right in the middle of that right now, putting our products together, shaping the future of our Electronics segment.

Indeed.

So in summary, robust product foundation, protect the base business, right? That is -- Josef hit on that right upfront. And not only protect our base business but to grow our base business also is very key to what we do. And we talk about our large growing end markets, right? They're growing with us. They're growing. We're growing. We're excited to go and provide solutions for our end markets.

And Billy, I think our track record shows that we know how to conquer markets. So we'll do that through new products, new channels, new geographical areas that we'll be able to reach. And I think, thanks to the very innovative team of engineers that we have worldwide and with the upcoming acquisition of Joyonway, we're even [ lodging ] that pool of engineers that we can tap from. And we're going to be able to really increase the Helios brand equity through products that are really cutting-edge and meet customers' expectations. But this being said, new products are not the only way to grow, right? I mean, we've been working really hard, and Rick will talk about it in a minute, about expanding our capacity in our manufacturing facilities to meet an increasing demand. And we did that through capital expenditures. We did that through significant productivity improvements, and we'll continue to do so. And finally, to fuel this growth, our very focused M&A strategy, of course, is going to be key. And the upcoming acquisition of Joyonway is a perfect example for that. So a lot of opportunities ahead. Enovation is going to be key to our strategy in the future, and we're really excited about it. Thank you.

Thank you. Now we'd like to welcome Mr. John Shea, our Chief Commercial Officer.

Thank you, Billy and JP. You guys have a lot of passion. I love it. Good morning. My name is John Shea. I'm the Chief Commercial Officer for Helios Technologies. I started on June 1, so away we go right to the deal. So anyway, for the last 27 years, I've been in commercial roles with industrial manufacturers such as BorgWarner, Regal-Beloit, ZF and Enovation Controls. I spent the last 7 years at Enovation in a variety of commercial roles, the last 3 as the VP of Global Sales. In that role, I have responsibility for our end markets globally, which are OEM, distribution and engine. Glad to say that we've onboarded many OEMs in the last few years. We revamped our entire distribution network, and the funnel is full in Enovation Controls. Really excited to work with Helios now and help this great team. Today, we want to talk about a new integrated sales process. As Josef mentioned, we are centralizing a lot of the disciplines inside the company: manufacturing, engineering, and sales. Today, we want to talk about what we're going to do from the sales side. Well, we want to put a new process in place to make our customers have it easier to do business with us, as Josef said. So first, we're going to talk about how do we get to that point. We're not there yet, right? We have a lot of work to do to deliver and get to that area. Two, we're going to talk about, once we get there, how do we go to market? We'll get ourselves prepped, but who and how will we deal with and how will we make it work? And finally, what is the value proposition for all our stakeholders, our customers, our investors, our employees and our community? How do we win when we do this? This is a very powerful slide. You've seen it on Josef's presentation, and you'll also see it with Rick Martich and Doug Conyers going forward. It talks about the future state and how we're going to centralize some of these operations to cut across all our different brands. As you can see on the left, currently, we have some very powerful brands that are all going to market independently. We have several brands like we call in on the exact same customer, and Josef said, that can be a little bit confusing. It's worked well. Don't get me wrong. We're not going to abandon that strategy. What we want to do is augment it so our customers have a new way to do business with us. We want to reduce debt, supply chain, reduce the number of vendors, sell them systems and knock components and have one point of contact to Helios. As you guys know, we've had several good synergies here recently. We had the release of XMD. We have MCx and [ Project Harmony ] that Jason just talked about that won the innovation award at John Deere. We've also integrated some of our sales teams in Asia. Sun and Enovation have integrated together. And we're starting a new process out in the West Coast of the U.S. We're actually going to do the same thing, and we'll see how that plays out. So new process and action. How do we make this happen? First thing we need to do is shore up our internal communications. Right now, we have our brands operating in silos. Everybody has their own CRM system. Everybody does their own go-to-market strategies. We need to buffer that up so we can do it from a Helios perspective. And we're going to do that with a new CRM system. This will allow us to share information. This will allow us to look at trip reports, contacts, voice of customer and feedback. But just having that data isn't enough. We have to use the data for something. We will set up internal meetings on a regular cadence to review the information that's inside the system, get next steps and fall through the customer. We don't want anything to fall through the cracks. Next, we need to make market segment experts. We're going to stand -- we're going to train our sales force. We have a wonderful sales force, actually the best I've ever worked with, but they're all experts in their own field. We want to train them across functions so they can sell hydraulics and electronics. We will call them market segment experts. It's not just going to be very random. We're going to be very strategic on how we do it. We're going to leverage geographic markets, so in the region, for the region, for the customers that we're going to attempt to go after. These customers will both be our end market diversification customers and current end markets. What are we going to tell The Street, what are we going to tell our customers, what are we going to tell the industry? First, we want to elevate Helios as a brand. We've got 4 great brands now, and we're continuing to add more. We could call it Sun by Helios, Faster by Helios, Enovation by Ilios, NEM by Helios, Joyonway by Helios going forward Helios is going to be part of the brand moving forward. We will standardize our marketing materials and put a marketing campaign along that line to start introducing slowly to the market. We'll standardize our trade show booths, a Helios booth, really, really working into our system sales. We're going to develop mobile marketing kits for our market segment experts that are able to go to the customer and show the integration, show the synergies, show the system sales together. Finally, we're going to take full advantage of this customer experience. This wonderful building is a real showpiece for our different brands, our different products. And you can see here, as Billy pointed out, we've got the motorcycle, we've got the machine, we've got the hot tub and there's others out there as well. Enovation, we used a product development site to really, really entertain our customers. It's very similar to this. We would take them up there. It was a very relaxed atmosphere. We will let them touch and feel the product, and then we would have a nice dinner with them after. It was a very successful philosophy, and we want to extend that to other Helios brands across the world, really. So now that we're trained, we have our information, how do we go to market? The first line of defense, of course, is our market segment leads. These guys will be experts in the commercial and the technical realm of this, and they will be the ones that will be located in the region, for the region, for the geography. We've already started to look at different partners, strategic OEMs in our end markets now or diversified markets going forward. We will select probably a dozen or so to get started with this and leverage our existing channel partners as necessary to help augment this strategy. So we get the -- we've got our targets. Now we have to go make the pitch. Our market segment leads, along with whoever else needs to join them, will go and pitch this to the customers. We're hoping to select 1 or 2 that we can partner with, and as we perfect the process, roll it out to more organizations throughout our global network. And finally, we will [ swarm ] them. For those of you who do not know what [ swarm ] is, it's a very powerful method that we use to really accentuate the customers. I'm going to take a minute to give you an example of what that might look like. So for the first 3, 6, 9, 10 months, the commercial team has been working with the potential customer out there. We're talking about how we go to market, how we operate, what our core values are, how our products fit, what we could do to bring value to them. The next step is we get them to the plant for our customer -- for a -- they're greeted warmly by our reception with a nice sign. Typically then, we would take them up to the conference room to relax, have a cup of coffee and start introducing them to the other people that they haven't met before. The key to this is the alignment between everyone in the organization. Swarming means everyone in the organization works for the sales group. We take them down to a plant tour, our Managing Director, Billy, or our operations manager, will take them through the tour but augmenting and reinforcing everything that we've talked about, our core values, how we do business, what we would do for them and how we can make their value, very much aligned. Throughout the tour, we have experts that are all their stations. They're all totally prepared for this. They talk -- in Enovation, we would go assembly, SMT, bonding, shipping, receiving and then the test labs. And then we go back to have the meeting, and I would be remiss not to mention our sales engineers. Our sales engineers are customer-facing engineers that can work with both the technical and in the relationship side. We're very much -- very much that's part of our DNA. So how do we win? We're all sitting here today because we want to know what's going to happen to Helios in the next 3 to 5 years. We will continue to increase market share and wallet share to drive value for the -- for all our stakeholders. We will create sticky solutions. As we augment with our M&A strategy and our flywheel acquisitions, we will continue to build systems that will create us and make us sticky with our customers, drive operational efficiencies for the customers, reduce the number of vendors, simplify the supply chain, have one point of contact. We always are about deeper and strategic relationships. As we have these sticky solutions and we do more with the customers, they will get deeper and deeper. We want our customers to know that we are truthful and transparent, and that will come through in our dealings from day-to-day. Finally, with the Helios Center of Engineering Excellence, we're going to need some new products for some diversified markets. We've already had some wins in the short period of time that we've gone after this. We've gotten some POS, as Josef has mentioned. But as we move forward, some of the big, big, big opportunities will require some products. In summary, new process that we talked about. We have to train our people. We have to align our communication. We have to leverage our relationships. Second, we're going to use our market segment experts to drive this process. We will identify multiple customers as targets, and we're hoping to get a few seed customers wanting to work with us. We'll always use the customer experience center as this is a great place for us to showcase our system capabilities and products. Finally, we have a great sales team at Helios. I said it before, I'll say it again, they're some of the best I've ever worked with. We want to strengthen them through the diversification of their expertise so they can go out and be the market segment leaders. Finally, we're going to think and act globally in everything we do. Protect the business, diversified markets, thinking about globally. Thank you. I'll now turn it over to Doug Conyers, Helios Center of Engineering Excellence.

Thanks, sir. Good morning. What a fun day. I hope you guys are having -- have as much fun as I am. My name is Doug Conyers. And as Tania mentioned, I joined Helios through the acquisition of BJN Technologies early in January of this year. So it's been great to be here, and I'm excited to play the role of being the leader of the Helios Center of Engineering Excellence. The Helios Center of Engineering Excellence, that's a mouthful, so I'll refer to as HCEE just to keep things simple today. I want to tell you about what it's all about, what we're doing and how we're going to ultimately add value to the shareholders. As Josef mentioned earlier today, it's really all about augmenting the strategy, it's about advancing technologies and accelerating growth. When Josef said augmenting the strategy, what Josef also said is that it's about protecting the business. HCEE has already stepped in done that. In today's world, we are challenged with global supply shortages. HCEE is a group of highly technical engineers who was able to jump in and address the needs by making changes in real-time to our engineering processes and our engineering products in order to keep those -- keep that flywheel running and keep those products in markets. As we talk about accelerating and a multiplier effect, this is what Josef said when he mentioned that we need to think and act globally as well as when he said that we need to diversify our markets. HCEE is focused on partnering with the individual lines of business to identify opportunities, to take current products and roll them out into broader markets as well as to innovate net new products that can benefit one or more of our lines of business. That's what HCEE is really all about. Finally, delivering results. By having a centralized, integrated innovation group, we are able to elevate the innovation capabilities throughout each and every one of our lines of businesses without burdening them with additional overhead. By doing this, we're able to manage the bottom line while also focusing on generating new revenue by bringing new products to market. I think this is the third or maybe the fourth time you've seen this slide so far today. So instead of talking to this slide, I want to share a use case of where we believe that HCEE can provide real value to Helios. JP earlier talked about the connected lifestyle. He talked about the need for a hot tub to be controlled by a cellphone. You're seeing lots of examples of different products, whether it's side-by-side or both throughout this fantastic center. Those are examples of devices that need telematics solutions so the distributors or sales, or customers can understand the status of their implements when they're not next to them, a connected device. And finally, when you think about Faster connectors, you think about the need to be able to dynamically plug and unplug different implements and have those devices intelligently support those implements with ultimately countering complexity by making it easier for those users. Every one of those is an example of where we, as Helios, need a cloud strategy. We need a way to be able to connect that user to that device through the cloud. As opposed to each one of our individual lines of businesses' taking the time and efforts to go through and develop that, Helios Center of Engineering Excellence is uniquely positioned to be able to define that strategy, implement that capability in a secure and highly scalable manner and deploy that out to our businesses, allowing Enovation, allowing Balboa, Faster and Sun to be able to focus on their core competencies and bringing new products to market, generating higher levels of revenue. So when we talk about HCEE, we need to talk about what we're really focused on. We talked earlier about swarming these urgent engineering issues. When there's a challenge, as opposed to redirecting the individual lines of business, we're able to step in and augment their capabilities to solve those problems and keep the cash flywheel rolling. As we're talking today, we're always talking about growth, we're talking about how do we take the great success we've had today and further diversify markets. How do we drive that into broader and more global areas? And HCEE is here to be able to take the capabilities of our Enovation team, bringing those to the individual lines of business and ultimately drive higher revenue. Finally, we're going to talk more about this. It's 1 of the 4 individual value streams that Josef mentioned was to develop talent. HCEE is a group of highly technical engineers. We will use that group to continue to develop new talent, bringing it into the business and deploying it out individual -- into the individual lines of business. We're going to do that by doing all 3 of these things, we're able to drive intercompany innovation initiatives. So that's great. But how are we going to do this exactly? So first of all, we've developed a transparent process that allows each of the lines of businesses as well as our customers and as well as our partners to bring new ideas into Helios. We have a process that we'll walk through where we take those ideas and ultimately identify the most value-added ideas. Those ideas will then be brought to Helios Center of Engineering Excellence. We will partner with one or more of the individual lines of business in order to develop those products. HCEE will focus on removing the risk, doing the majority of the R&D work and ultimately innovating that from ideation phase to productization phase. One of the coolest parts to me is that when we move from productization into manufacturing, we're going to return that product or take that product as well as the IP related to it as well as the key talent from within HCEE, and we're going to deploy that into the business, allowing that business to have a smooth transition, moving from that idea ultimately to a product that can be manufactured and can be sold within that line of business. So it's not about simply developing a product and dropping it into the business. It's about providing that smooth transition to allow them and continuing support that product and move forward. I talked about this process. Once again, harkening back to the augmented strategy. We're looking for ideas that are intercompany-related. We're looking for ideas where we can provide a single solution that can serve multiple of our businesses, or we're looking for ideas that can be a single idea that can serve multiple diverse markets. Obviously, the global market is a huge focus of us moving forward. And finally, we're always looking for that next great idea for something innovative that can take us to a whole new level. Once we pass that gate, we balance the value proposition of that product, the time to market, the complexity and we balance that against the complexity, ultimately allowing us to have a quantifiable order list of opportunities that we're then able to identify and move forward on the most high value opportunities. Earlier, when Billy was sharing with you that it was his most important slide. It was an infographic that looks very similar to the thing on the right here. I'd like to take a few minutes to show you a little bit about how we moved from focusing on a single OEM to looking at a platform that can more broadly solve problems for all of our customers. Historically, some of our businesses were very good at partnering with individual OEMs, understanding their concerns, working through those concerns in order to ultimately delight the customer with a product that serve their needs impeccably well. We're going to continue to do that. Serving our customers is absolutely critical. We're going to protect the business, and we're going to do what we've always done well. We're also, by adding HCEE be to the mix, we also have the opportunity to take a moment through that process to dissect the real business needs of that particular OEM and to identify how do we more broadly provide value to the entire business. So in addition to providing and delighting that target OEM with their solution, we also are going to focus on how do we drive that to different OEMs, or how do we develop a good, better, best strategy to serve that particular OEM's needs but also to serve a broader range or possibly a more diverse market or possibly, by making minor changes to the product, we may be able to provide a global solution. That's what HCEE is all about, providing that additional value. Summing it all up, we're here to protect the business. We're here to focus on helping to keep that flywheel rolling. We're here to advance technologies. We're here to elevate the innovation capabilities within each and every line of our business by taking our Enovation team and injecting them, as it makes sense, into those lines of business to help them bring new diverse products to market to serve our global marketplace. And that all adds up to 2 things. It adds up to increased top line revenue and it adds up to an efficient and effective way to do that, where we're able to manage our bottom line revenue and manage our -- ultimately, our income. So thank you, guys a ton for the time today. I appreciate it. It's been a ton of fun. Next, I'll turn it over to Rick Martich.

Thank you, Doug. Good morning. To those who are here in person, it's great to see you. And good morning as well to those on the webcast. I'm Rick Martich, the Senior Vice President of Global Manufacturing Operations for Helios Technologies, an engineer by degree. But for the past 27 years, I've been in a variety of roles throughout industry. The last 15 have been with Helios Technologies. Prior to my current role, I ran global operations for Enovation Controls. And then last year, I was appointed as the Senior Vice President for Global Manufacturing, Offshore Manufacturing and Supply Chain for Helios Technologies. Very excited to be here with you this morning to talk about how we're driving profitable growth through our operational excellence. Three key takeaways from my presentation today. First, growing manufacturing -- our growing manufacturing and supply chain footprint, enables a good, better, best commercial strategy. John Shea, our Chief Commercial Officer, talked about tackling new diverse end markets. One of the things that will enable that is our ability to produce products across a range of value propositions. And I'm going to highlight my presentation on how our growing manufacturing footprint enables us to do that. Second, the breadth of our resources across the Helios companies. If we leverage those properly, it gives us tremendous opportunity to drive profitability for the business. And then lastly, our growing manufacturing footprint enables geographic and end market diversification, and that will allow us to grow the top line, but to do it in a diversified way that mitigates risk over the long term. This map that you see really highlights our growing manufacturing footprint, and it literally continues to grow almost in real-time with our announcement yesterday of NEM, which we're so excited about. And when you look at this map, we have hydraulics and electronics manufacturing capabilities in each region of the world, and that continues to grow. We have it in the EMEA. We have it -- in EMEA, we have it in the Americas, we have it in APAC. But we also have a developing range of manufacturing locations in developed countries in each of those regions, but then also in low-cost locations, which really gives us that opportunity to craft those good, better, best commercial solutions. We've added in Baja, Mexico with Balboa, an electronics manufacturing location. We have recently announced with Joyonway in Southern China, another electronics manufacturing location in a low-cost location. And then lastly, we have Enovation Controls expanding in India, in another low-cost location. We also have hydraulics manufacturing capability in China. This gives us a tremendous breadth of leverage in both developed and low-cost countries to craft solutions for our commercial opportunities. And then lastly, we are developing an integrated global operating system across Helios. And that's going to allow us to expand our capacity as well as leverage that capacity and capabilities across all the operating companies as efficiently as possible. We now have a video that we'd like to share with you that really highlights the breadth of those manufacturing capabilities globally. [Presentation]

That video really does a great job of highlighting the breadth of our manufacturing capabilities across both the Hydraulics and the Electronics segment. And you've seen this slide before, you saw it when Josef presented, you saw it when John presented, you saw it when Doug presented. And so you see it again now as I present. And it's really helping to craft -- when you look at across those global manufacturing operations, the whole is really greater than the sum of the parts. What we want to do is to do a much better job of integrating and leveraging that footprint. So we've been operating more in silos within each operating company. And the future state, the now state, it's not future because it's occurring now as I speak, and it's something we've actually been working on now for the last 6 to 9 months, is really much better integration across those companies and that manufacturing footprint. But it's much greater than just manufacturing. It's also our supply chains across those companies. If we leverage those manufacturing capabilities, those assets, the people, the talent as well as supply chains most effectively, we'll be able to get great leverage across that operating footprint, which will really result in much better regional support and service delivery as we accelerate our in the region, for the region, manufacturing and supply chain capabilities. It will shorten our supply chain lead times and inventory and it will reduce the risk and exposure to quality issues that occur from long lead times, and it will also allow us to further optimize our operating efficiencies. Our approach, how are we going to do this? And how are we already doing this? So I'm going to give an example and then use that example to talk through these steps. The first thing and the example I'm going to use is we've recently chartered an inventory and freight team. And that task force, what it's focused on is looking as our businesses have grown and as business has been strong and as our revenues increase, our freight costs have gone up, and of course, inventory too supporting this growing sales are going up. So we chartered a team that from each of the companies, from people all around the world. We have a finance person and an operations person from each of the operating companies. All regions of the world are represented. And so we've engaged the global team. We've articulated a strategy of how we're going to, look, can we leverage the way we manage freight, coordinate freight across those companies to optimize that freight spend, to optimize our inventory levels? Also, are we using, and coordinating best across our supply base? And if we can consolidate and share suppliers at times, does that also further improve both our inventory levels as well as our freight spend? We're going to lead with facts and data. The team has collected a phenomenal amount of information, and we're using that to identify opportunities to improve. And with that, we're going to raise the visibility, and accountability is a big part of that. So we have an understanding of just what's happening in the business so that it gives us a deeper understanding to invent the right solutions to achieve number five, which is better profitability, driving profitable growth across the business. And in the long run too, through other initiatives like this diversification. We're building a global operating system across all the Helios companies. The first pillar of that is our strategy. We've shared a disciplined strategy that we've developed. As Josef highlighted, the entire team worked together over the last 8 to 9 months to develop the strategy and we've rolled that out. And that's our guiding principle as well as our shared core values. We're engaging the global talent pool. We have a tremendous breadth of colleagues across all of Helios in all regions of the world. That brings great diversity and knowledge, both of the business but of culture, and we're engaging that talent. And we're going to leverage our global assets and resources to get the best use out of those manufacturing resources as well as our supply chain partners resources. Ultimately, engagement for all that is the foundation, and that's what guides us as we go forward. We're measuring our success. One measure and one dimension that we use to measure that success is our developing competencies. Are we developing the right manufacturing process technologies and operating system capabilities to unlock the commercial opportunities that John Shea both shared, but then also you heard Jason Morgan talk about it, you heard JP and you heard Billy talk about from the businesses, the different strategies. Do we have the right manufacturing capabilities to support that growth as we go forward? Cost. Our goal is we're going to reduce and improve our cost over time, and that will add 180 basis points to our profitability by 2023. You saw that in the goals that Josef shared. You'll see that again echoed in the financial information that Tricia shares. And we're going to drive relentless improvements in quality and in our environmental footprint to achieve that. There are other performance measures that we will also measure ourselves by, quality, delivery, productivity, things that protect the business by ensuring we deliver the highest level of service to our customers so that we are the go-to supplier for them. And then our supply chain is a big part of this. It's manufacturing, but it's the whole operation of our -- both our manufacturing footprint, but also our supply chain partners. Are we making the right strategic make buy decisions? And are we carefully crafting supply chains that mitigate risk and allow us to shorten lead times? Overall, the goal is global manufacturing ops will enable that top line growth that you've heard everyone talk about while driving profitability. So in summary, the global manufacturing ops for Helios presents a tremendous expansive reach globally for us. And that growing manufacturing and supply chain footprint allows us, not just because we have locations in developed countries, but because in low-cost locations we have tremendous leverage to craft good, better, best commercial strategies to support our growth going forward. The leverage that we'll get across the operating companies will allow us to drive profitability, and we'll leverage that breadth of those resources to both craft the solutions but then deliver the profitability. And then lastly, our growth and diversification, that global manufacturing footprint and operations and supply chain footprint, enables geographic and end market growth and revenue diversification in the region, for the region that will provide the best level of service for our customers with optimal efficiencies. Thank you for your time. Now I'd like to introduce our Chief Commercial Officer, Tricia Fulton. What did I say?

You said commercial. John [indiscernible].

I'm sorry. Chief Financial Officer.

John, you're now the CFO. Good morning, everyone. I'm Tricia Fulton, Helios' Chief Financial Officer. I've been with the company for 24 years, and as you can imagine, seen quite a bit of change over that time period. And certainly, I know I am personally very excited about rolling out this augmented strategy. And I think you can feel the excitement from the team also about the augmented strategy. I'm going to talk to you today about how we're creating value for all of our stakeholders by executing on this strategy. On slide. Josef showed this chart in his presentation and went through how we developed the purpose in the shared values over the last few months and as well as develop the missions. I'm going to talk a little bit more about the missions. God, I keep pressing on the wrong button. Sorry about that. So first, we're going to talk about protecting the business. We've heard a lot about protecting the base business. Our base business very important as it's what drives our cash flow engine. And the cash flow engine is what allows us to continue to invest in R&D as well as execute on our flywheel strategy. Think and act globally. We've done a pretty good job of servicing our customers around the world as an international company over the years. I think now, as we're moving toward a global operating mindset, we'll be able to leverage the global resources and assets that we have around the globe to help us design, build and sell products in the region, for the region. Diversifying our end markets. We've showed you a lot of new applications and new end markets that we believe we can penetrate. We're going to do this through technology and development of new products. This will come through the businesses, but also through the help of the HCEE in developing these new products that will then serve these new diverse end markets. We'll also diversify through growing our wallet share with our existing customers as we work toward a system sale. And finally, developing talent. We have over 3,400 colleagues globally that we want to engage and develop so that we can continue to promote from within. We'll do this by being a learning organization, where we provide opportunities for our colleagues to grow both personally and professionally. And here it is in nice one slide where we can see our purpose, our shared values, our missions and then the strategies behind each of those missions. So I think the headline here really says it all. We expect to hit our $1 billion revenue milestone 2 years early. I'm going to pause there because I think this is a pretty incredible message. If we think back to a year ago and where we were in the middle of COVID, I would say Q2 of last year was probably one of the most challenging quarters that the company has been through, at least in the history that I can remember. We had a new CEO who had just started. He didn't know us and we didn't know him, which is kind of odd to think about now because we've all come together really well as a team the last year. And it seems like it's been more than just a year that we've been together. But during that time, we really took an opportunity to protect our top line and protect our profitability, and I think we did a very good job of that, and that's one of the things that enables us to make this statement today. But during this time, we also rolled out the purpose and the shared values and the missions and developed the strategies below those. And in addition to that, we announced 4 acquisitions, 1 of them, a transformative acquisition of Balboa and 3 flywheel acquisition. So with all of that, it's been pretty busy last year. And I don't think a year ago, we felt that we would be able to make a statement like that. But certainly, now we are very confident in our ability to do so. So if you look at the chart, over 2015 to 2020, we had a 21% compound annual growth rate over that period. That does include both organic and acquisitive growth. Tania said that we were reiterating our guidance, our most recent guidance, and that gets us for 2021 at end of the year to a midpoint of about $745 million. And we expect a 10% compound annual growth rate on the organic sales between the end of '21 and end of '23. That gets us to about $900 million in sales by the end of 2023 on an organic basis, leaving us $100 million from acquisition sales. The purple part of the chart represents the acquisition sales, and that does include revenue that we will be anticipating from our most recent 2 flywheel acquisitions that have been announced but haven't been closed yet. So how are we going to do this? We expect that our markets grow on average between 3% and 5%, and we do expect to outpace market growth by 2x. We will continue to diversify our markets, our products and our applications to help us grow revenue as well as leverage a strong pipeline of new innovative products. In addition to this, we will continue to execute on our flywheel acquisition strategy that will help us get the acquisitive revenue. Revenue diversification is very important. We're going to look at it from a segment perspective as well as a geographic perspective. In 2016, we were primarily a hydraulics company only, and all of our revenue was derived from hydraulics. By the end of Q1 '21 on an LTM basis, we were at about a 70-30 split, hydraulics to electronics. And as JP pointed out in his presentation, we do expect that electronics will become a much larger percentage of the total revenue out to 2023. On a geographic basis, in 2016, about half of our revenues were derived from the Americas, 30% from EMEA and 22% from APAC. By the end of Q1, on an LTM basis, we had almost 30% of our revenues coming from APAC, 27% from EMEA, and about 44% from the Americas. We do expect that on a geographic basis, each of these regions will represent ultimately about 1/3 of our revenue. We have very strong margins and a pathway to grow those. Rick was talking about that in his presentation just a couple of minutes ago. You can see, historically, we've generated very strong adjusted EBITDA margins. We ended 2020 at 23.2%, and we do expect that we will be able to capture 180 basis points off of that number as we grow through the end of 2023. A lot of this will come from what we're able to do through our manufacturing strategy of leveraging our fixed cost base that's already in place, but also our shared global supply chains, integrating our manufacturing operations, looking at our low-cost locations and what products can be made there as well as understanding and fully utilizing the capacity that we have around the globe. In addition to this, our disciplined acquisition strategy, will play into it. And we have a strong track record already of being able to add businesses that have solid margins. Cash position is very important. You can see over time that we've been able to significantly grow not only our free cash flow dollars, but our free cash flow conversion. We ended 2020 with over 200% free cash flow conversion. The second chart shows our leverage by year. The numbers in the boxes represent our year-end leverage ratio for each year. The light blue is the trough leverage for that year, and then the adder of the dark blue is to show what our peak leverage was for that year. We have the ability to convert free cash flow and increase it over time, which gives us a self-funding acquisition strategy. In addition, it allows us to continue to work toward our targeted leverage of less than 2x. We also have a very strong liquidity position. At the end of Q1, we had about $450 million drawn on our term loans or revolving credit facilities. That left us with about $176 million of liquidity, but we do also have an additional $300 million available on the accordion feature within our credit agreements. At the end of Q1, our net debt-to-adjusted EBITDA leverage was 2.65x and we're constantly working toward our target of less than 2x. We believe that this capital structure does enable our disciplined acquisition strategy. Capital allocation. Our priorities are organic growth, which you've heard a lot about today, debt reduction, acquisitive growth, which we'll talk about a little bit more in a couple of minutes, as well as support of our normal quarterly cash dividend. Over the last 5 years, because of our 3 transformative acquisitions, our capital allocations have been focused on acquisitive growth. But as we work toward a more balanced approach in the near term, we do anticipate that we'll see a better balance between our organic growth initiatives, coupled with our flywheel acquisition strategy as well as debt reduction. We are a top performer among our peers. Because we are a pure play in hydraulics and electronics, we do not have any direct competitors, so we've broken down our peer groups by our 2 segments of Hydraulics and Electronics. The lines on the chart represents the consensus -- the average consensus 2021 adjusted EBITDA margin as well as top line revenue. As you can see, Helios performs above the average in both hydraulics and electronics and is clearly one of the top performers among the peer groups in both segments. We have a proven M&A framework. I will review the goals in a little bit more detail on the next chart, but we are focused on flywheel acquisitions with acquisition prices of less than $100 million. And we're looking for companies that are successful on a stand-alone basis where we can retain management, retain employees, retain the brands and focus on the important customer relationships within those businesses. We are also focused on hydraulics and electronics targets. In the past, we have talked about linked technologies being one of our target focuses, but that's really more of a midterm focus for us, and our short-term focus remains on hydraulics and electronics targets. Looking at our M&A scorecard, these are the goals that were on the previous page. You can see from our transformative acquisitions of Enovation, Faster and Balboa, we hit, in those cases, all of the goals. When we turn to the flywheel acquisitions, we can take a much more targeted approach with those to meeting the goals. Josef showed this chart. And again, we're accelerating our plans, and we're very excited about the opportunity that we have to accelerate the growth of the company as well as the profitability. We expect to hit our $1 billion milestone in 2 years early, and we'll do this through organic sales growth at 2x the market rate. We'll also have an enhanced margin profile where we will achieve 25% adjusted EBITDA margin by year-end 2023 with non-GAAP cash EPS compound annual growth of greater than or equal to 22% on an organic basis, and this covers the period from 2020 to 2023. So in summary, we did a recap of the strategy to bring that all together for you. As you can see, we're pivoting to an operating company. So we're making that shift now. As Rick pointed out, it's already underway. We have tremendous growth opportunities on the organic side, and we have a robust funnel on the M&A side for the acquisitive growth. We also believe that our operational efficiencies will drive additional margins that will help us achieve our margin goals. We talked about our current financial position and the new targets that we have put out for our augmented strategy. As a team, we are very confident that we can meet these goals. With that, I'll turn it back to Josef for some brief closing comments.

Thank you, Tricia. Well, I have learned many years ago that you can have the best company, the greatest product, but it takes people to do it. So I believe that I have, for example, a very strong team. They all have great capabilities, passion and the willingness to win. We have spent, as a company, tremendous amount of time. We're pulling in everyone we could, including our investors, our customers, all of our people to build that closed-loop system, and I truly believe we are positioned to grow organically. I believe our plans are clearly outlined with targeted customers in different geographies to move the needle and organic growth. Our BJN acquisition will provide us a vehicle to future develop our product and put a force multiplier, bringing those products to market quickly. But what we're really after is separating ourselves as a pure-play company from the competition and really become very, very tough to follow. That's what we're after. And Tricia showed a chart in terms of our competitors. We don't commingle in anything else but hydraulics and electronics. And we're going to stay true to that strategy, coupled with a very strong manufacturing operating plan that we will structure our product cost around sales and marketing and develop that as a further weapon to win. So with that, I want to thank each and every one of you. We're looking forward to our Q&A. And Tania, I hand it over to you.

Great. Thank you, Josef, and thanks, everyone. So we're running a few minutes ahead, so we're going to take a 20-minute break. And we'll come back at 11:30 to start the Q&A session. Thanks again for joining us. [Break]

Thank you, everyone, and thank you again for joining us for the 2021 Helios Technologies Investor Day. We're going to start our live Q&A session now. And we've gotten some questions that have come in over the virtual chat box. So we'll start with one of those, and then we'll go to the audience, and we'll go back and forth. So the first question is you've talked a lot about the -- quite a lot about your vision for the company and the power of Helios, a number of things that you can do. What do you see as your biggest opportunities?

Yes. Look, I mean, we have outlined a comprehensive plan and a strategy that clearly outlines a pathway for profitable growth. But if I would have to prioritize it as due to the technology and the acquisitions we have made and our performance in the industry, I would say, not in any specific order, but onboarding new customers would be one of them and supporting that organic strong growth to be seen. The other one would be our margin improvement journey. With having a comprehensive manufacturing strategy now and having everyone aligned to it, we have identified opportunities that will continue to improve our margins. And thirdly, our new products. With the BJN acquisition and the cross-pollination with the hydraulics folks and electronics folks, we believe that having gotten very close to our customers and understand their strategy by simplifying their supply chain, they're really interested in all the Helios brand now and outlining how can we participate, where appropriate, in more of a system sales versus a component sales. And this product, on the right-hand side here, the little excavator is a perfect example of it. It has an innovation control around Faster couplings and hydraulic valves. So you will continue to see that system sales approach with specific targeted customers in the industrial sector.

I'm sure we have a question or 2 from the room. We've got a microphone, if you can hand it right here.

Mig Dobre from Baird. Maybe my first question is for you, John, and Josef, you can maybe chime in as well. I think I can appreciate the strategy of having an integrated way that you're coming to market. And I think I can appreciate the system approach as to what you guys are trying to do with product. What I'm kind of curious to hear about is how you think about on is there a component to your targets that addresses this dynamic? And from your perspective, having been in a sales role for as long as you've been, as you're tackling -- as you're broadening the offering, right, and you're catching more of that customer wallet with what it is that you're doing, how does that translate into your ability to capture more value?

As we continue with our M&A process and adding in flywheel products, we will be able to supply an entire system sale. The value becomes the stickiness of the solution and the fact that we would be hard to replace. As we move forward with this process and we perfect it and we understand our target markets and where we go, we think the value will be driven by the fact that the customer will be in need of our products.

I mean clearly, Mig, look, clearly, there's an opportunity for an improved financial performance here. I mean that's where you're going with your questions. The reason why we didn't detail it out yet further and broke it down in different elements, we are still in the beginning phases of that. We received a couple of very nice POs. We have a few customers now which we penetrated a systems sale product, but we are still building up the process, building up the system. And I think, over time here, over the next 3, 6, 9, 12 months, you will see a deeper outline of the margin improvement journey as we penetrate and get those products securely into the customers' hands. So it's still too early for us, but the assumption is correct. There will be a benefit to the shareholders as we target the specific customers with a system sale approach.

I do also believe, though, that we already have very strong margins as we looked in the peer groups, and that's on a component basis. So being able to drive significantly more margins from a system sale may not necessarily be the best way for us to go since we're already getting those margins on a component basis. And I think John's point about the stickiness of the sale and getting into those OEMs and being the supplier of choice and making it easy for them to do business with us is really what's going to ultimately long term drive the margin, probably more than the individual system sales.

Great. Okay. And then I guess my follow-up, going back to the outgrowth targets that you've provided. I'm sort of curious if you can maybe put a finer point on that. When I was asking about pricing, I was thinking of that really not just margin. I'm also curious as to how you're thinking about existing customer wallet share versus new verticals or new end markets that you're going to be tackling.

Yes. Thank you, Mig. Look, our #1 strategy is to protect our current business, and that's what we're going to stay very focused and disciplined on. Number two, I go back on saying we targeted specific customer into diversified sector. We know that's a niche sector for us. And as you know very well my path in the industry, so I'm very well-versed in the specialty vehicle market or commercial foodservice market or HVC market. I know where we can fish and I know the outline of the financial performance. So the margin portfolio entering a diversified market will be at least equal to what we currently have.

Any more questions from the room? Or should I go to the -- we've got one right here.

Nathan Jones, Stifel. I'd like to follow up on Mig's in terms of the outgrowth. I mean you look at 3% to 5% market, maybe 10% organic growth. Can you talk about the kinds of things that you need to do to drive that increased organic growth, whether it's engineering new products together? How you manage that process? Attaining new customers? Just the different components of how we get from that 3% to 5% market growth up to your 10%.

Yes. Thank you, Nathan, for this question. And I'm going to start and then I can hand it over to any of the business leaders. But one of the lessons learned here, and we really took this too hard, is when we did our customer perception study, it was the true market awareness. There were markets that did not know all of our brands. So just kind of virtually of getting out there, like John said, and telling our story and inviting them into our doors and showing them what we do generated a really strong interest on our current products. But then as we started, we have monthly calls now with distributors, with customers and we cross-pollinate as we got a better understanding of their kimono and what they're really after. They have to drop a mindset of, "Look, we have a current product offering. There's some products that need minor surgery. There's some products that need an open heart surgery. So that's what BJN is focused on on future products. But we see current products with minor modifications, minor surgeries to really make an impact in the industry just by the virtue of brand awareness and who we really are and our closed loop environment like -- I think Billy said it earlier. Customers just didn't know what we do. They looked at Innovation as a display controller company, but we build so much more that goes into this. Now having Balboa on board, having John Shea on board, it brings us the complementary product that we needed to answer the bell on the customer's request. So those are kind of pieces and elements that will drive the engine on the organic growth piece. And then we have BJN cutting across all the brands, working collaborative on the change over time. What I call it, every 2 to 3 years, customers are changing over their products, and that's where we want to get in. And so I hope that added some color to your question, and I invite my team here to add, too.

Yes, I think it's a combination of all of it, really. Our diversified markets, some we've had some wins already with existing product. Jason outlined a bunch of those today in his slide, and we've had several significant wins at -- in the electronics world as well, one we've already launched and one we'll launch in August. So that pipeline is filled. But as we go into new markets and try to find new products to sell into, we're going to need the help of HCEE to bring new products to market for that.

Then during the presentation, a few of you mentioned that the siloing of the business -- businesses and how they've been operating in silos need to break that down. Typically finds a inertia when you try and get in there and do that. Maybe you could just talk about the processes that need to be implemented, the silos, the big pieces that need to be broken down in engineering sales, et cetera? And then how you manage that process to keep people focused on the core. And you said the #1 strategy is to protect the core business in order to leverage across those functions without disrupting the core business or with minimizing the disruption to the core business.

Yes. I mean, we clearly had a strategic shift from more -- used to be a holding company, and the strategy was we're going to acquire businesses, we're going to let them run independent. And as long as there will be rolled money in the company, we're going to leave them alone. That was kind of the strategy. And -- but what you don't get there is you continue to grow, you just lose the leverage. You lose the leverage on the innovation piece, on the talent piece. And most importantly, when you compete with larger players, you really don't have any advantages going in as a single-source business. So now we are more of an operating company. And to answer your question, Nathan, what processes did we use? We just pulled everyone together and got everyone's voice incorporated and also had our customer perception starting from us, and it clearly suggested we had a CAGR rate that we were after and we're achieving that. Pandemic was a very difficult journey for any company, but we really haven't missed a beat on the top line or on the bottom line. And what processes have we -- do we have to fix? We have the strategy defined now. We have plans defined now we have the team in place. Now it's just a matter of executing.

I think, internally, we can execute on those processes. I think we've identified what they are in most of the cases where we're working toward a global operating mindset. But there are clearly, for us to be able to grow to the kind of company that we're envisioning by 2023, will also require investment on our part. And we've talked about the investment in OpEx that we're going to need to make to be able to be that $1 billion company. So there are investments that will happen, in addition to implementing the processes that have already been identified or are already in place.

I've got one from the online audience. So it appears that you actually serve a number of markets that have applications that were more diverse than I had realized. How can you broaden that through these industries?

I can take that one. So we've identified on both the Hydraulics segment and the Electronics segment certain target diversification markets that we are not in now. And we are working towards developing the products and the relationships with those people so we can start launching in a year or 2 years. So I think that there's a lot of opportunity for us outside of what we're currently at.

Jeff, go ahead.

Jeff Hammond with KeyBanc. Just first on the acquisitions, I think you identified another $100 million in acquisitions. Maybe just give us a sense of how much is already baked with Joyonway and NEM. And then as you look at the pipeline, is it more focused on flywheels from here? Or is there still a rich pipeline of transformational deals?

Yes. Right now, we're focused on the flywheel acquisitions. And from a revenue perspective, there's nothing baked in per se yet, but certainly, we expect that the revenues from Joyonway and NEM will be part of that $100 million. To frame that a little bit for you because we have gotten questions since we've had the press releases come out. Those are relatively small acquisitions from a revenue perspective, but certainly very strategic to our plans in both cases. They represent low single digits as an adder to our total revenue as a percentage. So again, not huge right now, but certainly will grow over time with the system sale that we're expecting to be part of bringing those companies into the fold. And we will focus on additional flywheel acquisitions that are in that same kind of framework going forward.

So the focus, Jeff, is clearly, as Tricia said, on closing the product gaps. The NEM acquisition and Joyonway were just a force multiplier, so the folks at HCEE can focus on future products so we can enter those very lucrative, diversified markets. Not to get too technical, but in our Hydraulics segment with Jason and Matteo, we had a product gap to really continue to gain market share in electrification. And there was just a simple valve outline, what we call it, 3-position, 4-way belt. To design a belt like that takes up to 2 years and a lot of people and a lot of money. NEM has that product offering. So integrating NEM's product offering into CVT -- coupling CVT with Faster, we got the system. We got the electrification we're looking for and can start branching out into a broader share of the pie. So it was purely strategic with some great engineers and great people.

Great. And then just -- I know when you did Balboa, it was much more than who will respond. Maybe just what are your early learnings as you start to go out to these broader customers? And then as you think about this outgrowth, does that evolution of Balboa kind of going into other markets even come into the play and this time frame '21 to '23?

Yes, great question, Jeff. So I'll let Jay speak a little bit, but I'll take the first one here. When we originally acquired Balboa, it was a transformational acquisition. We liked the base business. It was very well positioned to grow organically and some great ideas to further diversify, great financial profile. And we also wanted a good-better-best strategy with the product offering in the niche markets with strong margin. We got that. What we didn't know was how lucrative that acquisition actually is until we got into it. They already had plans to diversify even further in the true health and wellness market that is much broader than spas and hot tub and swim spas. And this is where we're working together on with John and JP and Billy on capturing those markets. You've seen on the videos a couple tidbits of new market applications that we will enter, and look, I think all of us could not be more excited what this Balboa acquisition will bring for us. But equally important, as the markets are really strong in North America, we've seen an increased interest in Europe, but also in Asia. We have very complementary brands with Joyonway now for the Balboa -- with Balboa and with Enovation. So look, it's really exciting, but JP, you might want to add something to that.

I must state as a recent addition to the group because it's only been 7 months, I'm very impressed with the Helios approach. I mean they've done a lot in 7 months to protect our core business, which was very important because we have a huge demand right now that -- and without the investment that Helios made, it would be hard to be able to meet the demand. So that was really critical. But I'm also very impressed with the opportunity that we have in front of us. And I mean, Billy and I have been working together more and more. We only scratch the surface of the products that we could do together with the help of HCEE and Doug. We have some great ideas on how to merge some of the technologies and come up with products at price points that would be in between of 2 typical products. And the opportunities are great. They are great in the health and wellness segment, but we're also thinking of adjacent markets, as we talked about earlier, in which those products would fit very well.

Let me give you guys an example here so you can really get some granularity for your questions here, Jeff. So maybe, Doug, you can take from a product standpoint.

So Jeff, your question was, are we able to realize change within the next 2 years? And the answer is absolutely yes. Nathan, you asked how do we go about the process of handling this integration or centralized innovation group. And so let me answer both of those questions with a little bit of an insight. So we have the Balboa displays. And the Balboa displays work competitively well, and they have served the spa market well. Enovation builds displays and controllers that serve those markets. What we've done is we've worked with both those engineering groups to understand what they're doing, how they're doing and really go through and do an analysis of what's working impeccably well, where can we improve, and ultimately, how can we develop a good-better-best strategy there. So that is something that has already happened that we are working on, understanding how do we take the best of both of those businesses, those engineering groups and bring them together to develop a good-better-best strategy that John can then take to new markets and be able to serve out to realize additional revenue, yes, in the next 2 years.

We've got a good follow-up question from the online audience. Can you help us understand more about how the NEM acquisition that you announced yesterday fits into your Hydraulics segment?

Well, to start with it, they possess, like I said earlier, a very complementary brands and also closing the product gap in the Hydraulics segment that we can really complete our electrification and start gaining market share in that area as well. It possess an engineering department that's really state-of-the-art. We will have an in-region, for-the-region manufacturing facility and an integrated supply chain. And Jason, maybe you can take the next.

Yes. So as you said, Josef, I look at it as 3 things. One is the filling in the product portfolio gap. We had some areas in our EH line that they fill in. We'll be able to quickly expand on that acquisition with their product. Second is their capabilities, their processes. With regards to the manufacturing in the region, for the region, gets us right into the corridor there, and we'll facilitate that. The other goes back to this system sale. And integrating their product, they are very strong in the parts and body area. And so integrating their product line with our cartridge valve technology, it builds in that good-better-best strategy, a part of a system because it may have multiple components. And so it fills in all 3 of those for us. It's the reason why it was so strategic and fits well into the Helios strategy.

Do we have any more from the room before I go back to the online?

Sorry, but I have to go back to the whole outgrowth path here. I mean, look, cyclically speaking, when we're looking at the next couple of years, unless something surprises all of us, company with your end market exposure should be able to deliver superior organic growth, right? I mean your customers' production schedules are ramping up over the next couple of years. So in some ways, I guess, even though maybe me and my peers here did not necessarily put that in our models as we forecast out to 2023, it's understandable as to why your targets look the way they do. Can we maybe unpack a little bit the cyclical nature of the business and the help that you're kind of getting from your end markets relative to what you're really doing here? Because as I understand your comments, we should be thinking about Helios being able to grow 6% to 10% organically through the cycle on a sustained basis ex the cyclical swings. I mean that's kind of what you're communicating here today. It's a target that theoretically stretches beyond 2023. So can we maybe unpack the sustainability of the outgrowth versus just the pure cyclical help you're going to be getting over the next couple of years?

Yes. So clearly, Mig, we got a -- like everyone else, got a little bit of boost here from the economy recovering post-COVID. But strategically, we put ourselves in a position to really maintain at pace going forward, and that's what drove our confidence in announcing that we will hit our goals 2 years earlier. It's -- and in our case, it's not so much cyclicality post COVID versus seasonality. But the new products that we have in the pipeline, our strategy and leveraging the recent M&A companies and integrating them, leveraging their brands and closing our product gaps, we really don't rely on the boost of the economy versus rely on our own success, executing our strategy and keep that boost as a caveat, so to say, knowing that's going to flatten out one day. But once that bell curve starts going down, we should see steady incline in terms of our organic growth with our new products and our M&A. So Trish, maybe you can add a few...

I was going to add, you may want to talk about the fundamental shift of going from really selling components to systems and becoming much more of a strategic partner, getting in the sales cycles. There's multiyear planning cycles with customers, really changes the dynamic, right?

Yes. And that's what I was alluding to earlier. As we got the brand awareness into our customer base -- and once again, we -- the true power lies in Helios as a company with Faster, Sun, in Balboa, in Enovation, you name it. And as we got in front of our customers and they understood our product offerings and our true capabilities above and beyond just what we're selling, there was a strong interest in participating further and more of. A matter of fact, the super-transparent here, we had to pump the brakes in a couple of them just a few weeks ago because we were just not ready to engage as fast as they wanted us to. So we need to have a proven concept. We need to go through proper testing. You guys will see our new testing facility that we invested in, over $10 million, over the last couple of years. It will further position us to penetrate our products into the market quicker, faster with the same superior performance. But that system sale I'm talking about is really additional incremental revenue for us with equal or better margins that we currently have, but it will take a little bit of time. So we really not rely and make -- and the rebound and the quick boost that we've seen in the industry versus controlling our own destiny with our strategic plans we have in place.

There are a few of our businesses -- they're all in different parts of their cycle right now. Certainly, ag, we've seen growing over the last -- started really in Q4 of '19, took a little COVID dip for Q2 of last year but ramped back up after that. Certainly, Balboa has seen some benefit of coming out of -- or going through and coming out of COVID. But I would say Jason's business on the CVT side, it's still starting -- or continuing that ramp up and hasn't hit the peak yet. So I'm not sure that we can say there's a cycle for Helios. I think each of the businesses has their own cycle, and they're going to go through them at different stages and durations.

So I've got another one from one line. Can you talk about the capacity in your existing facilities to support your $1 billion in sales and sales target and really beyond that?

Yes. So as Rick started his journey, one of his key tasks that was -- that he was tasked with is to really identify our global capacity we currently have. And as we did the study, I think we ended up at about 60%, 62% total capacity to be utilizing. So we have plenty of room to add more business into our existing facilities. That's step 1. Step 2, on the Faster side in Italy, we have invested significantly, and we'll continue to invest in protecting that growth because they have seen increased demand. And with the new product innovations and with -- now with the NEM acquisition and with the collaboration between CVT and Faster, there's additional revenue that's coming our way. So we're protecting that growth because Faster did reach peak capacity, and we started at an investment ratio -- when, late last year?

Yes.

Early last year, I would say, right?

No, late last year. That was...

Late last year. So meaning we're adding equipment. We added...

Space.

To the building -- so we're adding space, automation, supply chain. And Rick, maybe you want to add a couple of things?

Sure, yes. As Josef highlighted, we're well capacitized in terms of our ability to support the growth that we're seeing. You see that in the fact that across a lot of our businesses -- like Hydraulics is a great example, CVT with Jason, despite the increasing demand, our lead times are market-leading that we see. And so we've been managing that very tightly not just there but across all the businesses. There's really 3 things to highlight that -- first is that we're going to continue to drive just continuous improvement through our processes and, through that, achieve new levels of performance. One of the things working with JP and the team operationally at Balboa, we've been able to achieve record levels of production now that they've never achieved before. And actually, we've been doing that with fewer resources. And so that's been a tremendous success for us through just a lot of process-driven improvements. The second is that, and Josef highlighted, we're going to continue to invest capital strategically that gives us capacity and capability technologically to provide the solutions that are needed, whether it's the quality levels or it's the capacity needed across the business to support that growth.

And maybe, Tania, a final comment. Another element of the strategy in manufacturing is to have the right balance between local manufacturing and low-cost manufacturing and supply chain. So we were in -- Tricia and I were in Mexico just a few weeks ago and visited our Balboa plant. And there's just something about go and see for yourself. It's a really outstanding facility, 1,400 people divided into injection molding and electronics. Plant is divided, well air-conditioned; believe it or not, for Mexico, very low turnover. And that plant is just producing really good quality product and improving every single day. That will allow us over time to bring in additional products from -- either from Tulsa or from Sarasota here, and really focus on low-complexity product offering to be manufactured in a low-cost country. The Joyonway acquisition will allow us the same vehicle. NEM will allow us the same vehicle. So there's is a fine balance between local manufacturing and low-cost country manufacturing that, in return, should also contribute towards improving our margin.

I think the other last thing I would add to that is leveraging our global footprint is a key part of that strategy. We have Faster production that we've launched in our Kunshan factory in China that was started originally by the Sun CVT team, and that gave us tremendous opportunity. And we're looking similarly with Joyonway with Balboa, where we look at -- there's a good amount of revenue that Balboa sells into China. And so Joyonway, as Josef highlighted, gives us the opportunity to leverage that footprint. It's not just the manufacturing footprint, but it's the local supply chain in that Dongguan area. And that corridor of China is the electronics corridor. And so this growing footprint really gives us a whole new breadth of perspective on capacity leverage across the business as we grow.

And this will help us free some capacity in Mexico in order to accommodate other products from the group.

Absolutely.

Another one from the room here.

Just while we're on manufacturing. You highlighted the 180 basis points of margin improvement. How much is simply just leverage out of volume growth? And then if you think of the other portion that's procurement, low-cost sourcing, low-cost country, the other buckets of margin improvement. Maybe just talk about that.

Yes. There certainly is leverage that we will get on our fixed cost base. But remember, we also are going to be making investments to make that happen. So we will leverage as much as we can, but there are some incremental investments that have to happen. I would say if I had to put a number on it, 1/3 of it is going to come from leverage, and 2/3 of it is going to come from the new initiatives that we're doing through the global mindset from a manufacturing perspective.

And if you think of the 2/3 that's in your control, what are the bigger buckets?

You want to take that, Rick?

Sure. So I think you follow it through the whole value stream from your suppliers through manufacturing. And obviously, there's a fair amount we spend with our suppliers. And so leverage across our supply base is one bucket that we'll focus on because we'll be able to consolidate across commodities with suppliers that give us better pricing at certain -- and larger and higher break points of volume. And then when you go into manufacturing, then there's the leverage of the footprint. When you can leverage an existing facility and not have to build a new facility, as I gave the example of production for Faster ramping up in our Kunshan facility that's a Sun CVT facility, that's a great example of leveraging that existing structure. So that way, we don't have to spend more. And while there is an overhead absorption piece with that, there's an operating expense piece that comes with that, too, because we're utilizing existing resources, management team, et cetera. So it's a much more efficient operating platform. And we'll see that across the other businesses as well.

Okay. And then just shifting gears on the -- back on the synergy side. As you bring in all these acquisitions and you've got a much broader Electronics business, what do you find as you go into these new markets as kind of leading the way? Or where is there more pull between Hydraulics versus Electronics?

That's a great question, Jeff. I think the pull and dedication we see is clearly that Electronics will start catching up to Hydraulics relatively quickly. And the appetite for having a strategy that we outlined over the last couple of hours and having a product offering that's still within our margin portfolio but a good, better, best strategy will also drive growth for us. And so we see a path -- or we have a path, I should say, that clearly balances out those 2 segments very nicely, but the pull-through is clearly in the Electronics right now. So that segment will grow by default. But Jeff, I want to go back to just the manufacturing piece and just add one more element to the vision we're having. It's over time, over the next 2, 3 years as we execute on our plan and deliver and earn our stripes with our investors -- or continue to earn our stripes with our investors, we see a path of really having an integrated supplier park where we can have core competencies for Hydraulics, for Electronics come out of one facility. We have a very strong following in terms of supply base for a long, long time, and there is an opportunity here for us to work even closer together and, over the next 2, 3 years, to just really develop a supplier park. That supplier park will be laser-focused on Helios, so integrate core competency products that we do not have to hold inventory, that will be just in time. They will be highly flexible and optimized on our current and future needs. So that's kind of what we're talking about visionary over the next 2 or 3 years.

So we've got a couple of questions coming in online that are around M&A. I'll kind of put them together as a multipart question. So can you talk about your M&A pipeline? And will that take potentially 5 to 10 acquisitions to achieve your $100 million goal? And is there any -- are they kind of your current pipeline? Is it more active in Hydraulics versus Electronics?

Yes.

Do you want to...

Yes. We are a team. Go ahead.

We have a very strong M&A pipeline. It's full on both the Hydraulics and the Electronics side. I don't think one is outweighed by the other. We also, as I talked about, have a midterm strategy on the linked technologies, and we do have targets in that bucket as well. I think we're constantly updating those target lists and looking at what things are actionable for us, which ones best fit what we need for the strategy at that time, and going after the ones that we think we need to be focused on. But the pipeline is very robust, and I don't think that we need to necessarily change any of our processes in that. It seems to be working very well. I see [ Dave ] in the back of the room nodding his head. He's in charge of our M&A funnel. So I'm glad that he's in agreement with what I'm saying. As far as how many acquisitions, it will take us to get to that $100 million in revenue. It's very hard to say because it's really the -- what the -- all the acquisitions have different revenue buckets. So it depends on which ones we're able to action to determine the number that we will get there. And I think we're probably focused more on how we are looking at the targets as being integral to what we're trying to do from a strategy perspective versus focusing on the amount of revenue.

So well said, Tricia. So Tania, are we depending on M&A to get us to the $1 billion, the answer is N-O, standing for no. Our M&A approach has been not to chase revenue. Like I said earlier, we are very comfortable with the plans and strategies we have in place that we will outgrow the market 2x, 2x the rate. So if you just do the math and you multiply this, you get to a number. But leveraging the M&A, leveraging the strength of the new companies we bring on board, closing the product gaps, switching over where appropriate into the niche markets to more of a system sale, leveraging the relationships that we have in the industry, coming together as a company and truly have the brand awareness in the industry will drive that $1 billion growth. So we will not do M&A to chase revenue. We -- this will be very specific, very strategic and done in the right way that the shareholders will have a clear understanding why we're doing what we're doing, and we certainly seek the support of doing that, so being a good steward of the shareholders' money. That's the path we have outlined.

Great. Thank you. Do we have any more from the room? Right over here.

I just wanted to follow up on supply chain. I mean 5 years ago, Helios is a $200 million revenue company. And in 2 years, you're looking to be a $1 billion revenue company. You brought in a bunch of different acquisitions, which I'm sure have a bunch of different supply chains that's introduced probably a lot of complexity into managing that. And again, you talked about being in silos and letting those businesses operate pretty independently up until now. So maybe you could just comment on where you are in the process of simplifying that supply chain, of generating the appropriate leverage out of your spend, and then how you view that strategy of keeping the supply chain local versus leveraging the spend to generate better pricing.

Yes. Thank you, Nathan. I may surprise you here but it's actually, in many cases, just the opposite. And what we learned as we embarked on this process, the supply chain for CVT and with the leading brand being Sun, it's really done a nice job optimizing the process and really following through with integrating the suppliers closer to the business. And as the design phase [ and PI ]steps got executed, suppliers were ready to go. On the Enovation side, the supply base is an actual strength. You should think that being a $600 million, $700 million company, we would kind of come last on the food chains, especially on a pandemic stage or inflationary environment, but we are not. We have really good, loyal suppliers close to the facility, close to the region. Where we see a tremendous opportunity and potential is leveraging debt in that area that we're really laser-focused on understanding, optimizing and see how this will flow as we add more international companies. And Rick, maybe you want to add a couple of sentences to that.

Sure. I'd be happy to. Yes, Nathan, we really don't see it as a challenge. We see it as an opportunity. I think Josef highlighted that. And it's really an opportunity globally in terms of the talent and the capabilities of that supply base. With those suppliers, it's interesting. John talked commercially about how we swarm our customers to build these deep relationships across all the functions of the business and disciplines where that customer knows that we are completely committed to them. We actually take the same approach with suppliers. We've had suppliers tell us that, "We have the best relationship with you than we have with anybody, anybody we've ever done business with." And they actually love doing business with us because there's a respect and a partnership they have with us. And that gives us tremendous opportunity. Now when you add that with the growth internationally, as we've added to our footprint both organically, growing by expansion across the businesses in different parts of the world like China and India, or as we've recently added acquisitions like NEM in Northern Italy or we've added Joyonway in Southern China, that just expands our supply base and an opportunity to look for where it makes sense. If possible, we will go in the region for the region. It shortens lead times, reduces inventory. It reduces quality risk, exposure. But we'll be intelligent about that. And we'll use the data to drive us. If ultimately there's better leverage that can be had by consolidating globally, then there'll be times when we choose to do that. The other thing we'll be looking at though is risk. We want to make sure that we really mitigate risk. I think if anything in the last 18 months has taught a lot of us is we have to look at risk in different ways in this day and age, and supply risk of a global supply chain has to be evaluated as well. So that will be taken into consideration also.

And if I could add to that, Rick. One of the things you guys were asking about a few minutes ago was processes and what are we doing around processes to support these. We see our suppliers as an extension of us. And so things that we do are we help them with their capacity planning. We actually send our capacity planners into them to help them with their activities. We also help them with their sourcing strategies. Where are they sourcing materials from? How can we help them with forward purchase contracts on metals? And so we see them as an extension of us, and we look to facilitate their growth as we are looking to expand as well.

Then maybe I'll go to the diversified end markets that we're looking to move in. I don't think we've talked much about that yet. Can you talk about what are the most attractive markets for you to get? And what needs to be done in new product development front in order for you to get into penetrating those markets?

Yes, certainly, Nathan. So clearly, markets that are niche markets, applications that are in a really rough terrain, what we call it, so -- that require the rugged applications, sealed, bonded, commercial food service area is one area that we are targeting. Specialty vehicle area is another area we are targeting. But also, commercial applications that -- John, do you want to add a couple more?

A couple more markets?

Yes.

Sure. Yes. So we really want to get into several markets that we've identified as a zero term loan market, where we feel like there's a big runway there with -- there's a lot of volume, a lot of potential revenue. We've already started building those relationships with those customers. And as Doug comes on and we get the appropriate products, we think we'll be able to move into that. Also, around the world, we've got the AWP market as well. And we think that there's a lot of opportunity. We're already on several with our high-end products, but there's a big runway there for another -- a good, better, best strategy using the good.

And for final one, Nathan, that we targeted is -- we targeted 3 in each segment. It's clearly the construction in the crane industry, what I call it. When you look at an off-road crane, if it's a 4x or 5x or 6x or 7x, where all that is hydraulics, stabilizers, that's where we can really participate with our product because it requires truly the best product. You don't want to rig a crane if that thing tips over. And I have been -- do have the relationship in this area, having come from that industry. So...

I've got one from online. When you...

Yes. So clearly, penetrating the international markets with our product is the focus. Well, Jason, you just did the acquisition. So you can talk about...

Yes. So definitely, there are certain areas that we are looking to focus on. Obviously, Southeast Asia is a big one in the hydraulic space looking to grow there. Latin America is another one for us as well. And this is part of that good, better, best strategy. In some of these markets, the best product may not be the ideal for that market, and so as we're developing our good, better, best strategy, making sure we have the right products for the market. And so this is part of that product strategy that we talked about, and aligning all of this together is where we're headed in this augmented strategy, advancing the technologies that suit the relative market.

And JP, did you want to add anything on the Electronics side?

On the Electronics, JP.

Yes. Or Billy?

No. I think that Jason hit right on it that in the region for the region, the right products at the right time and the right partner, right, really important for us to go out and find the right partner as we move forward.

Do we have any more in the room here?

Terrific presentation by the team. Thank you for the thoughtful walk through the business. On a related question of capital allocation and how you prioritize things, so it strikes me as -- there's a massive amount of organic opportunity from the integration of your team, going to market with customers, taking things that they give you and putting them into your portfolio. How do you prioritize the opportunity for that versus M&A? And I guess the question is, the visibility of partnering with someone to put forth a new product or a new component versus going out and buying something and the relative weighting you might give to the 2.

Yes. So a lot of -- everyone probably in here did many M&As in their lifetime. I happen to do quite a few of them and there's still a lot of scars on the back on something that didn't go well. So you learn from this experience. So our process is really highly disciplined and focused on our strategy. Our M&A strategy ties into our overall business strategy that you learned here throughout the morning. And if we can get shareholder value faster and can separate ourselves from competition with the financial performance that is expected from us, if we can do this with M&A, we will do this with M&A. If we have products that are close and require augmentation, we'll get our global engineering department involved. It's all about timing and speed to the market. So that's what drives most of our decision and where we allocate smart capital, what I call it.

I can tell you when we get opportunities to look at companies that are for sale, we get them through a lot of different avenues. The first question that we ask is, is this a strategic fit or not? It has to pass that test first. And if it is, is it something that will help us accelerate faster by acquiring versus doing it on our own? So that's really at the forefront of everything that we look at from an acquisition perspective, knowing what we want to do over the next few years with the company to achieve the targets that we've set.

We have companies in our portfolio that we walked away from that just didn't fit and didn't make sense to our strategy. They were accretive, they were good companies, but they just didn't offer anything else in addition to what we already had. They would have grown the top line much quicker, but it's not what we're after. We can do this organically very well.

We've got another one from the online audience. Do you currently have the team in place to execute your plan? Or do you have any other holes that you might fill in along the way?

Yes. Great question. So as for the audience in the room that met the team, minus Matteo who is in Italy, I know there is a laser focus on our profitability and margin. But I think it's fair to say, as Tricia outlined, we will have to add a few more folks to the portfolio. It takes people to execute as we grow. So this is not a CapEx expense, excuse me, versus an OpEx. And so between OpEx and people, we will have to add a few more folks to our portfolio, but they will not be on an executive level. They will be more on an engineering level, supply chain level, manufacturing level.

Okay. Great. Anything else from our audience in the room here? Okay, we've got more from the online crowd. When you think about the focus on system sales, what will the average customer profile look like in the next 2 to 3 years compared to what our customers look like today?

We will -- our company will significantly change in terms of spread between Hydraulics and Electronics. In many cases, existing customers will penetrate additional products in both Electronics and Hydraulics. In other cases, you will see additional new customers and markets coming online, and that will be well balanced with our priorities and how fast we can execute. But I think the answer to the question is existing customers, well balanced between Electronics and Hydraulics, they will be the #1 priority following by a longer-term vision of adding new diversified customers as we get ready to launch this new product.

Great. Another one that we had online was, can you talk about -- you mentioned being -- cross-training your sales force, right, from the different segments. How difficult do you think that will be? And what do you think the time frame will be on doing that?

Yes. So this is clearly a long-term process that we're undertaking right now. This strategy is going to evolve over the next few years. And we've got great people in our sales force across Helios. But the training, I'm estimating probably somewhere in the neighborhood of 18 to 24 months before we get that up and running. And all the other things we need to do to start working on these system sales with either our existing customers now for these new diversified markets, there's some time going to be involved. We're very much in the infancy here.

Our path to success in sales, as John outlined, we are by nature culturally a very risk-adverse company, in many cases conservative. So we really want to earn our stripes. So we targeted the crawl, walk, run mindset. So we need to learn how to really have a few wins cross-functionally, and we have outlined that, I think, very well today. And once the folks get the level of confidence that they can really win cross-functionally, the crawling stage is behind us and the walking stage begins. So it will be an evolution over the next 12 to 18, 24 months coupled by wins that we're going to have in the company. So...

Yes.

Okay. Any more questions from the room? I think we've tired everyone out sufficiently. So again, I want to thank everyone for joining us in person as well as virtually. We do want to make a note that we've got an online survey that should pop up as the event ends. And as you heard from our presentation today, we actually really love feedback. And so we really would like to have you take a few moments and give us some feedback to that online survey and let us know what you learned today and what are the points that you'd like to understand more about. In the room here, for those of you that are here and people that will come visit in the future, we've got some equipment on display, and I think they may pan around with the camera to show you some of that, and we've got some outside as well. So again, we'd love to host many of you in the future to come to our new customer experience center, see this wonderful facility and meet the team. Again, thank you so much for joining us today, and have a wonderful day.